To start off, the C and O Canal is a National Historical Park and is thus maintained by the Park Service. Importantly, this means that the camping is free along the Canal. Campsites are located right on the trail every 5 to 10 miles of the Canal's length (with a few longer stretches here and there). Each campsite is basically a clearing with a picnic table, fire pit, port-a-potty, and a well-water pump. Many of them also have access to the Potomac River (though it is often muddy access).
Starting on the DC end of the trail, with pictures beneath each entry (Canal mileage in parentheses):
Swain's Lock (16.6) - This first campsite breaks a few of the Canal campsite rules: it is accessible by car and has running water (up near the lockhouse). Because of it's location and accessibility, this site often has many campers (occasionally of the loud/drunk variety), but is sufficiently sized for many groups. Finally, there is a secluded (secret) site here separated from the others - go into the camping area, then head down towards the river and upstream, follow the little path you find until it ends at this separated campsite.
Horsepen Branch (26.0) - Standard campsite in the woods, though it is pretty narrow and right on the trail. I frequently camp here since it is a good short ride from DC but far enough out that it is not crowded.
Chisel Branch (30.5) - Standard campsite.
Turtle Run (34.4) - Standard campsite.
Marble Quarry (38.2) - Standard campsite. The site has a section that is clear of trees and gets sun in the afternoon.
Indian Flats (42.2) - Standard campsite just past the Monocacy Aqueduct (0.2 miles).
Calico Rocks (47.6) - Nice deep campsite, lots of room for a large group.
Bald Eagle Island (50.3) - Standard campsite. Caution: railroad is near to the site and can be noisy at night.
Huckleberry Hill (62.9) - Standard campsite, somewhat crowded against the trail.Killiansburg Cave (75.3) - Standard campsite, but crowded against the trail. Also, not much room here for any sizable group.
Horseshoe Bend (79.7) - Standard campsite. Best place to camp before the Slackwater detour at 84.4, since Big Woods has a water supply issue.
Big Woods (82.5) - This site is notable because, as the C&O Canal Companion says, "the water pump is rather inconveniently located a fifth of a mile downstream". This makes fetching water a chore. Note that this is also the last site before the Slackwater detour.
Jordan Junction (101.3) - Campsite relatively close to Williamsport. Supposedly has a funny smell sometimes because of a nearby tannery.
North Mountain (110.0) - Standard campsite on the side of a hill. Looks like a nice place to camp, though I have never stayed here myself.
Licking Creek (116.0) - Small campsite removed from the trail a bit.
Little Pool (120.4) - Nice secluded campsite between the Potomac and Little Pool.
White Rock (126.4) - Standard campsite. (no picture)
Leopard's Mill (129.9) - Standard campsite. (no picture)
Cacapon Junction (133.6) - Standard campsite with nice view of two rivers and some railroad bridges. This is opposite the point where the Cacapon River enters the Potomac. (no picture)
Indigo Neck (139.2) - Campsite at the foundations of an old lockhouse (and lock).
Devil's Alley (144.5) - Nice campsite opposite a good size mountain that you can climb on if you have extra time. Also, good (non-muddy) access to the river at this campsite.
Stickpile Hill (149.4) - Nice site in the woods. Has a small bridge over a ditch, which makes it even more fun.
Sorrel Ridge (154.1) - Large campsite at a lock. Note that the sign is missing, though it would be pretty hard to miss the campsite itself.
Purslane Run (156.9) - Standard campsite.
Town Creek (162.1) - Possibly my favorite campsite on the whole Canal, Town Creek is many times larger than most of the other sites. Additionally, the view of the river and mountains opposite is great.
Potomac Forks (164.8) - Campsite at the point where the Potomac forks into the "North Branch" and the "South Branch". This campsite is situated at a lock with a standing lockhouse and a railroad bridge. The canal is watered here (with many water lilies growing in the Canal) and has a number of small wooden bridges.
Pigman's Ferry (169.2) - This campsite is a fenced-off area surrounded by farmland. There are not many trees here, so shade will be harder to find.
Iron Mountain (175.4) - Large, deep campsite.
Evitt's Creek (180.0) - The trainyard here is so close that you can see the trains sitting just across the canal, which means occasional noise at night.